June 2011

June 03, 2011

The history of California practically is the history of water. So it’s not surprising that the recent history of the state involves a shift from government facilitating growth to government sharply restricting growth — in water and the rest of the economy.

The older model must be restored for California to again become an engine of economic growth, Rep. Tom McClintock told the Fourth Annual Orange County Water Summit in Anaheim, which I attended. In January, he became the chairman of the House Water and Power Subcommittee. He said that the situation in California is much like that throughout the country, but worse here because of our unique situation.

Recalling the era before the 1970s, he said, “It was an era when vast reservoirs produced a cornucopia of clean and plentiful water and power on a scale so vast that many communities didn’t even bother metering the stuff.

“That generation of builders clearly understood the benefits that water and power development brought not only to the economy but to the environment as well. Nothing is more environmentally devastating than a flood or a drought.”

By contrast, he warned, today “the principal purpose of government water policy is not to produce abundant water, but rather to ration shortages that government has caused by abandoning abundance as its objective. The result is increasingly scarce and expensive water that is now affecting our prosperity as a nation.”

Cost-Benefit

In any business, a key aspect of planning is cost-benefit analysis. If something costs too much, you don’t do it. But if costs can be contained, then a profit is possible.

McClintock said that, when he took over the chairmanship, that cost-benefit analysis no longer is done on American water projects. “Instead, practicality was replaced by an entirely new ideological filter,” he said. “Those projects that ration or manage shortage are considered worthy regardless of feasibility or cost — and projects that produce abundance are to be discouraged regardless of their economic benefits or simple common sense.”

At the national level, he said, the new Republican majority on his subcommittee will institute two reforms: First, all projects coming before the subcommittee will be subject to cost-benefit analysis. That will replace “the current process, which I can only describe as throwing money at any water project that is ideologically pleasing to the committee, regardless of cost considerations.”

Second, he said, was that “beneficiary pays” will be the basis of projects initiated with federal funds. “There is no excuse for taxpayers to bear the cost of any water project,” he said. “Every project must be cost-effective and it must be financed by the beneficiaries of the project in proportion to their use of its benefits. Once capital costs have been repaid, such projects can then provide a revenue stream for the participating governments for the life of the project.”

McClintock, a former state senator and assemblyman, especially excoriated California for switching from a “beneficiary pays” model to one funded with tax dollars. He pointed out that, in the last decade, California voters approved six water bonds totaling $17 billion that was supposed to solve our water needs, but didn’t.

$11 Billion in New Water Bonds

I would add that, on the 2012 ballot is another water bond, for $11 billion. It was postponed from last year because of its immense cost and its vast spending on pork. According to Ballotpedia:

The $11 billion water bond bill includes about $2 billion in earmarks for projects that “lawmakers candidly acknowledge were included in the proposal to win the votes that were needed to pass the plan out of the Legislature.”[7]

Examples of projects that would be funded if the proposition passes are:

* $100 million for a Lake Tahoe Environmental Improvement Program for watershed restoration, bike trails and public access and recreation projects.

* $75 million for the Sierra Nevada Conservancy, for public access, education and interpretive projects.

* $20 million for the Baldwin Hills Conservancy to be used to buy more land. The conservancy is near the home of Assembly Speaker Karen Bass.

* $20 million for the Bolsa Chica Wetlands in Huntington Beach for interpretive projects for visitors.[7]

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McClintock pointed out that the debt service ratio, for not just water bonds but school, parks and even stem-cell research bonds, now stands at 7.7 percent of the general fund. It’s a major reason the state is having trouble just balancing its budget.

By contrast, at the end of the building era of Gov. Pat Brown (Jerry’s father) in 1966, the debt servicing ratio stood at just 2.2 percent.

McClintock brought up the Burns-Porter Act of 1959, which “financed construction of the entire state water project. It was a total of $1.75 billion approved in 1960. That’s the equivalent of $12.3 billion in today’s money. That’s substantially less than the water bonds we’ve approved during the last 10 years and about the size of the bond pending voter approval.

“The Burns-Porter Act paid for the entire State Water Project. In the last 10 years we’ve approved a significantly larger sum of money, promising the public it would solve our water needs. And once again I must ask, where is our generation’s State Water Project?“

Four Water Lessons

To get back on track, McClintock said, several lessons need to be learned:

Lesson 1. “Project first — then financing.” If you go for a private or business loan, the bank first is going to ask what it’s for, and what your capacity to repay is. But in recent decades, government has started projects with a bond issue that only vaguely outlines what is supposed to be built, a prescription for fiscal disaster.

The money would ease classroom crowding. It would make college buildings safer. New technology would enhance learning. And financial oversight would be stringent.

That is what was promised to Los Angeles voters.

The reality? Tens of millions of dollars have gone to waste because of poor planning, frivolous spending and shoddy workmanship….

McClintock insisted, “Today, we revel in ‘mega-bonds’ that borrow billions of dollars for vague notions like ‘water’ or ‘parks’ or ‘stem cell research’ or ‘economic recovery,’ with no specific projects in mind and at the end of the day all we have accomplished is to create a gigantic grab bag of money for local pork projects.

“That’s the first lesson: we have to get back to the classic California constitutional concept of approving bonds only for a ‘single object or work’.”

Lesson 2. “Don’t rob St. Petersburg to pay St. Paul. If a project exclusively benefits a local community, it should be exclusively paid for by that local community.”

Lesson 3. “Beneficiaries should pay. Federal funds for future water projects should not be doled out as gifts to the lucky beneficiaries, but rather fronted as loans to be repaid with interest by the project’s beneficiaries….”

“With respect to state or local funds, unless it’s a self-liquidating general obligation bond like those used in the Burns-Porter Act, there’s no excuse for using a general obligation. bond for a water project — it should be a revenue bond repaid by the actual users of the actual water and electricity produced by the actual project.”

Lesson 4. “Don’t rob our children. Whatever is purchased with a 30-year bond ought to be there 30 years from now when our children are still paying off that debt. Yet the bonds adopted in recent years include billions of dollars for cleanup and conservation projects that will be obsolete long before these bonds are repaid.

“Our children are going to have their own pollution to clean up and conservation programs to promote without paying for programs from 30 years ago.”

Water is a Commodity

In the question and answer period after his talk, McClintock pointed out that water is a commodity, like oil, corn, beef, eggs or frozen concentrated orange juice. There’s nothing mysterious about it.

“California’s water problem controversies could be solved simply by treating it as a commodity,” he said. “If you’ve got a willing buyer and a willing seller, the it’s OK.”

Although he previously represented Southern California’s Simi Valley in the state Legislature, McClintock’s current seat in Congress represents the area just northeast of Sacramento in Northern California. So he has had to learn the water politics of both areas.

He said, “What I hear in Northern California is, ‘Don’t steal our water.’ But if you sell it, that’s not a problem.”

He also attacked Gov. Jerry Brown’s “era of limits” policies of the 1970s and 1980s, which shut down vital infrastructure projects.

During that time, I would add, the state’s population burgeoned from 20 million in 1970 to 30 million in 1990 — a 50 percent increase. And it’s kept on growing.

Yet Brown himself has not learned that lesson. He has proposed no sensible solutions to the state’s water problems. And last month he signed into law a bill that mandates energy suppliers must get 33 percent of their electricity production from renewable sources by 2020, a utopian policy that will greatly increase state electricity costs.

This shows how Brown still holds to his outdated “era of limits” philosophy from almost 40 years ago. The only “limit” he doesn’t endorse is for taxation, as he keeps pushing tax increases to cover the new spending he proposed in his May Revise to his fiscal 2011-12 budget.

It’s unfortunate that the initiative for real reform has to come from the federal level. But given the tight connection between between federal and state water policies and projects, nowadays that’s inevitable.

Moreover, with state, federal and local budgets deeply in the red, some realism has got to return to resource policies. The proposed $11 billion California water bond already was postponed last year to 2012 because everyone knew it would fail on a November 2010 ballot. It likely will fail, also, if it’s on the 2012 ballot.

When government tax-and-waste policies fail, it’s inevitable that people will wise up and return to cost-benefit analyses, pay-as-you go and user-pays policies.

McClintock concluded his Q&A remarks by saying that “the American people are turning this back. In the House, we’re returning to a policy of abundance.” To see this article, go to: